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Reminder: Saving Provisions Will Not Save an Unenforceable Termination Clause

Discipline and Dismissals | Employment Contracts | Employment Standards

In the recent decision of Wilds v. 1959612 Ontario Inc., the Ontario Superior Court of Justice provided yet another reminder that saving provisions in an employment agreement will not save a termination provision which violates, or has the potential to violate, the requirements of the Employment Standards Act, 2000 (the “ESA“).

As a refresher, the purpose of saving provisions in employment agreements is to confirm that the employer intends to comply with the law regardless of what any other provisions of the contract might say. In the past, employers relied on these types of clauses as a “catch all” to address any drafting deficiencies that could be interpreted as being offside the requirements of the ESA.

However, the courts in Ontario have been clear that such saving provisions cannot be relied on by employers to fix a termination clause that is in direct conflict with the requirements of the ESA. The concern is that being able to “fall back” on saving provisions could allow employers to draft illegal termination clauses which take advantage of the fact that many employees are not aware of their legal rights and may not know they are entitled to more. To prevent this, the courts have made it clear their expectation is that employers will draft their termination provisions correctly to ensure compliance with the minimum requirements of the ESA.

Background

In the Wilds case, the plaintiff pursued a claim following her dismissal seeking her entitlement to reasonable notice at common law. The employer argued that the employee’s rights on dismissal were limited by the termination clause in her employment agreement.

Assessment of the Termination Clause

The court found that the termination clause breached the requirements of the ESA in multiple ways:

  • The termination without cause provision stated that the plaintiff’s entitlements during the notice period would be calculated based on her base salary only, and would also only include continuation of her health and dental benefits, in breach of the ESA which requires that all compensation and benefits continue for the minimum statutory notice period;
  • The termination without cause provision required the plaintiff to sign a full and final release in exchange for any payment, contrary to the requirements of the ESA; and
  • The termination with cause provision contained categories of “just cause” for termination that fell short of the standard of wilful misconduct required by the ESA to disentitle an employee to notice/Termination Pay.

The court acknowledged that the just cause provision did include language which attempted to invoke the requirements of the ESA. Specifically, it contemplated that the employee would have no entitlement to notice “other than any notice, pay in lieu of notice or severance required pursuant to the applicable employment standards legislation”. However, the court found that this language was insufficient to save the termination provision, given that it was immediately followed by examples of just cause which clearly failed to meet the standard of wilful misconduct as set out in the ESA.

The clause also contained a saving provision which stated as follows:

It is intended that this termination provision includes any entitlements you have pursuant to the Act.  In the event that your entitlements pursuant to the Act exceed these contractual provisions, those statutory provisions shall replace these contractual provisions and no further payments are required.  You agree that the provision of notice, pay in lieu, or a combination of both as set out above will fully satisfy all obligations of the Organization to you, whether arising pursuant to statute, common law or otherwise, and that you will have no further entitlement to notice, pay in lieu, or severance arising out of your employment or the termination thereof.  To be clear, these provisions replace any common law entitlement that you would otherwise have.

The court confirmed that this saving provision could not save the termination clause, providing the following commentary:

This paragraph cannot reconcile the parts of the termination provisions that are and have been in direct conflict with the ESA from the outset.  See Rossman at paras. 35, 40-41.  The statement at the beginning of the paragraph that the intention of the termination provisions is to include any entitlement that the employee has pursuant to the ESA is contradicted by clear violations of the ESA in the termination provisions.  Such language creates ambiguity and confusion for an employee and does not constitute clear wording that allows an employee to know at the beginning of their employment what their entitlement will be at the end of their employment.  In my view, the termination provisions in the Employment Agreement were not drafted with strict compliance with the ESA as their main objective.

Damages

As the termination clause was unenforceable, the plaintiff was entitled to reasonable notice at common law. The court awarded her two months, including:

  • $7,500.00 for lost wages,
  • pay in lieu of the loss of her benefits (valued at 10% of this amount),
  • payment of her earned bonus,
  • accrued but unpaid vacation, and
  • reimbursement of expenses.

While the court declined to award any damages to the plaintiff for mental distress, it did award her $10,000.00 in punitive damages, as the employer had breached the ESA by failing to pay the plaintiff her minimum entitlements, even after this issue was repeatedly brought to their attention.

Key Takeaways

This case is an important reminder for employers that taking the time to properly draft the termination provisions in your employment agreements is essential. Improper drafting cannot be saved by catch all provisions such as the one the employer attempted to rely on in Wilds.

We regularly work with employers to help ensure their contracts are drafted properly and effectively limit their potential liability. If you don’t currently have employment agreements with your staff, or aren’t sure if your contracts are enforceable, we encourage you to reach out.

This case is also a good reminder for employees that your entitlements may not be limited just because you signed an employment agreement containing a termination clause. Before accepting a package or signing a release, we encourage you to contact us so we can ensure it fairly reflects your entitlements at law.

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